A Left-Libertarian Argument for Anarcho-Capitalism

Entrepreneurship”, as Peter Klein states1, “is at the very heart of economic growth.” The role of the entrepreneur is speculating about the uncertain future, the coordination of production based on the discrepancies of current costs vs future prices of finished goods (due allowance given to time preference), and so on. Without the entrepreneur, economic growth and development cannot happen, and without capitalism (private ownership of the means of production) entrepreneurship isn’t possible. That is, to have an incentive to produce capital you have to be able to make use of it and/or sell it, and for either of those you have to be able to control it — and the same for the incentive to buy it. To have any confidence that you will still control it tomorrow, you need a legal regime that assigns you exclusive rights to control it — that is, you need private ownership of the means of production, or capitalism.

While it should be clear that hierarchy would arise from this arrangement, it is the position of many on the libertarian-left that horizontal firms (co-ops, partnerships, etc) would be expected to out compete hierarchical arrangements and thus be predominant in a stateless society. What is disconcerting, however, is the extent that left-libertarians have no entrepreneur theory.

For instance, in his book The Homebrew Industrial Revolution2(as Tate Fegley succinctly describes3), Kevin Carson “divides production into two opposing methods: “demand-pull production, which minimizes inventory costs by producing only in response to orders”; and “mass production [which] requires supply-push distribution (guaranteeing a market before production takes place)”. Of course, Carson could claim that treating his arguments regarding demand-pull distribution as though they ruled out entrepreneurship and innovation is an example of a strawman; but, the role of P2P design communities (as if all an entrepreneur undertakes is the design plan) in tying design directly to feedback from consumers, and putting consumers in the active, rather than passive, role in product design, has been a major theme in Carson’s work. Thus, nothing he said in Homebrew Industrial Revolution is incompatible with that.

Nonetheless, it seems as though Carson’s conception of the entrepreneur is someone who invents stuff, not someone who forecasts, bears uncertainty, and directs resources. In my reading of Carson, there seems to be no real entrepreneurial problem at all, since with “demand-pull” distribution, the co-op or sole proprietorship, etc, form the small, non-hierarchical firm which will just produce when something is ordered. There is also this idea that consumers have the skills needed to do all this stuff they have no desire or reason to. Carson seems to really downplay the gains from trade and specialization. As an illustration, on p. 168-169 of Homebrew Industrial Revolution, Carson lists a “post-scarcity agenda” and number 5 calls for “A shift of consumption wherever feasible, from the purchase of store goods with wage income, to subsistence production or production for barter in the household economy.”

Setting aside the fact that Carson is barely even bashful about reverting to barter and people living in subsistence, he also calls for work-sharing and shorter work weeks. It is strange that for someone who is knowledgeable of classical economics, Carson doesn’t seem to understand Say’s Law. You can’t afford shorter work weeks by hobbling production, the division of labor, and specialization.

The main theme of Carson’s book (though it goes a bit all over the place) is that we should have had a second industrial revolution where most production becomes small-scale. Large-scale production is the fault of government privilege, railroads, and so on. Thus, we should only have craft beer and not Budweiser, as a basic example. In addition, modular tractors, open-source cars, and made-to-order ball-bearings. However, I don’t know if Carson appreciates just how many capital and consumer goods there are out there and how complex their production processes are. His neighborhood exchange system may be feasible for things like haircuts and sewing, but not much beyond that. Lastly, just because you have “open source” XYZ – you still need “firms” (1 or more employees/workers/owners) to decide how to best decide the type of inputs (and that means investment, planning, and more importantly the use of scarce factors of production). It is as if Carson’s and other left-libertarians’ whole purpose in developing economic theory is to attempt to demonstrate that the role of the entrepreneur is unnecessary.

Chartier’s Socialism

To his credit, Gary Chartier, in the article Socialism for Left Liberty4, takes on the endeavor to distinguish market socialism (a la Benjamin Tucker) from state socialism (a la Soviet Union) as an alternative for those on the left.

Chartier defines socialism as

[A]ny economic system marked by (i) wide dispersal of control over the means of production; (ii) worker management as the primary mode of economic activity; together with (iii) the social preeminence of ordinary people, as those who both operate and manage the means of production.

In this particular article, Chartier is simply bracketing the question of ownership, because he is assuming a particularly radical version of the “separation of ownership and control” that’s become such a common feature of the contemporary corporate scene. If ownership = share ownership, then shares, with corresponding income streams, would belong to whoever happened to buy them. Chartier prefers small firms, organized as partnerships or co-ops, in which workers are also owners. But the model he has in mind is one in which ownership and control are radically separated, in which workers make decisions but simply contract with arms-length investors for capital. So, in this case, you might describe the investors as owners. But the various incidents of ownership would probably be distributed fairly widely. The “owners” would be entitled to income streams per the contracts associated with their shares.

What Chartier is describing (whether he realizes it or not) is very similar to Guild Socialism which Mises talks about in Socialism5 and in Human Action6. In Human Action, Mises points out that the people calling for worker “management” are trying to do away with the role of the entrepreneur. This, of course, also involves risk. Chartier seems to be trying to handle the “risk” element that the Guild Socialists ignore by the “arms-length investors for capital,” but he still hasn’t covered the issue of how resources will be allocated according to anticipations of the future to best meet the needs of consumers. “Management” is not the same thing as “entrepreneurship.” Mises then illustrates how this form of socialism logically leads to German-style Socialism (what the Nazis used, but which existed prior to Nazism), because the State had to fulfill the role of the entrepreneur by directing production and distribution. This is how Italian Fascism ended up operating so identically to German Nazism, according to Mises’ analysis.

A big problem is that someone has to fill the role of entrepreneur no matter what economic system there is. It is either the owners of the capital, or the state. By default, if it isn’t the owner, it must be the state, and this means that worker “ownership” is effectively just a legal facade. Chartier is acknowledging that there are people who will put up liquid capital for the workers, but they aren’t coordinating resources. They’re risking, but not allocating. Indeed, Chartier and other left-libertarians could claim that the workers themselves can serve the function of entrepreneurial speculation and resource allocation, but that results in a few problems:

Who gets the final decision when agreements aren’t unanimous? Theoretically, it could be decided by majority votes – and as libertarians we wouldn’t object to a business being run this way – but the question is, if somebody seems to be better at such speculations, what’s wrong with the formation of a hierarchy?

If we are dealing with a profit-loss system, a democratically run business has to speculate better than an individually owned business that hires wage workers. If the latter is more efficient, do you use force to seize the means of production?

Why would an investor want to deal with a ton of owner-workers? If the workers are controlling, then that means that they are fulfilling the entrepreneurial function. But that means they have to decide how to allocate resources, and this means deciding how to allocate limited capital into the most desired ends, and if they do this wrong, then they suffer the consequences in the form of losses. Other “losses” would be the burden of the investors, and they have to risk these losses by lending money to a bunch of workers who are going to handle the resource allocation for them. Not to mention there is little to no collateral for their risk. Because if that were the case, then the workers who speculated poorly would lose their property to the investors who now privately own the means of production.

Flat firms must raise all their capital from their workers, which limits capital accumulation. Also, flat firms are less likely to make tough decisions regarding automation and layoffs, for the same reason unions always fight against these things; the workers are hesitant to vote to lay themselves off, for obvious reasons. For instance, let’s say the firm has a really bad quarter — operates at what would be a significant loss for a capitalist. Are the workers prepared for a huge cut in their pay? Perhaps they might have set wages, with “profit sharing” schemes. But this runs into another problem — how do you lay off employees if they “own” the business, too? Essentially, this system must get closer and closer to a wage-paying hierarchical system of a firm in order to consistently operate well.

Even if they’re all profit seeking, there’s the question of whether to prefer short run gains (older workers about to leave) or long run gains (younger workers).

A left-libertarian might insist that in a free society all potential employees would demand partnership, and dividend payments (or some such) rather than wages. But then they’re staking their capacity for subsistence on the consistent profitability of the firm, which is always suspect. However, if the firm is relatively new, it isn’t yet profitable enough to pay you — you may have been working on it for years and haven’t seen a dime. All the money made goes to your vendors and employees, marketing, travel, etc. Nobody would have done this work for what could have been paid to co-equal owners — nobody would have wanted to become an owner except maybe for free.

There are a handful of “if” statements that need to be addressed. By pointing out one at a time, one can give a superficially plausible answer. But rejecting each one leads logically to another “if” statement, and none of them lead to anything other than anarcho-capitalism as we understand it or state socialism as the Nazis understood it.

A “free market socialist” society in this context with worker management, and no hierarchical structure or individual owners, would necessitate a state. As in, left-libertarians must either capitulate to capitalism or statism, and Chartier is trying to avoid acquiescing to either side by ignoring the role of the entrepreneur.

Conclusion

In both scenarios, it is worth noting and giving credit where credit is due: left-libertarians are correct that present-day state institutions promote wage labor by, among other things, erecting barriers to entry into other ways of making a living. So it stands to reason that in a free society there would be less of it than there is today. Furthermore, as Klein states7, left-libertarians rightly point out that “in the mixed economy large corporations are among the prime beneficiaries of government largess, such that a wholesale defense of ‘big business’ is silly and counterproductive for libertarians”.

However, as has been argued elsewhere, it is also true that “the libertarian left are guilty of what Harold Demsetz called the “Nirvana fallacy”8 by comparing real-world hierarchies against some hypothetical ideal, finding them lacking, and concluding that their own favorite methods of organizing are better.”

The owner-entrepreneur seeks to improve the cost/benefit ratio of a project, e.g., seek out profits in a monetary sense. The most profitable decision for a firm, the decision that best advances the economy and society, often involves automation, recognition of redundant positions, shortening hours, or other positions that workers in a flat firm won’t vote for. But in the technical sense, everyone is an entrepreneur, laborers included.

Economics, in speaking of entrepreneurs, has in view not men, but a definite function. This function is not the particular feature of a special group or class of men; it is inherent in every action and burdens every actor. In embodying this function in an imaginary figure, we resort to a methodological makeshift.

In other words, every action brings a psychic profit or we wouldn’t take it, every action is speculation, and so in a technical sense, every actor is an entrepreneur, since all action involves speculation. If we didn’t have the theory of the entrepreneur, there’d still be entrepreneurs in reality, but if there were no entrepreneurs, we’d have stagnation, constant shortages and surpluses, volatile prices, and no coordination of production. Without a theory of the entrepreneur, any theory of the firm is seriously limited, and this seems to be a fundamental flaw in left-libertarianism.

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